A recent Scottish case relating to the collapse of a tunnel which formed part of the Glendoe hydro-electric scheme suggests that a provision for joint names insurance does not displace the parties’ liability under a NEC2 Engineering and Construction Contract.

In SSE Generation Ltd v Hochtief Solutions AG, SSE had engaged Hochtief to design and build a hydro-electric scheme. The parties entered into an NEC2 ECC form of contract, incorporating bespoke “z-clauses” stating that each party indemnifies the others for an event at his risk, that the contractor was to take out a policy in joint names to provide cover for contractor's risk events and that each party's total liability was capped at the tender price.

Hochtief obtained a joint names CAR policy in respect of their risk events.

Following a major tunnel collapse in August 2009, the scheme was out of operation for three years. SSE commenced proceedings against Hochtief to recover its losses. Hochtief acknowledged that SSE’s right to claim depended on the construction of the Contract, but argued that “As the CAR policy expressly waived subrogation, the parties intended that they could not make claims against one another in respect of risks it covered” – they relied on the wording of the Policy to negate express provisions of the Contract.

The court observed that such a construction “would do violence to the language selected by the parties” and held further that “There is no irrebuttable presumption that [parties] have no liability to one another simply because a joint names policy is in place. That would tend to merge the law of insurance with the law of contractual interpretation.”

This case is particularly interesting as it deals with issues concerning contractual liability, joint insurance and subrogation, and may be persuasive in English courts. The judgment went against the “thrust of authorities in favour of joint names insurance displacing contractual liability,” and approved the guidance in “Keating on NEC3”.

The judgment helps clarify parties’ position in respect of NEC contracts as it provides an analysis of some of the key provisions, particularly clause 83.1, clause 84, and clause Z11.

In the court’s own words, “this is a difficult area of the law”. Until there are further developments, parties should expressly state their intentions in contracts and be clear on the impact of any insurance cover they obtain.

This article was originally published for Insurance Day